Verizon Abandons Rural America, But Yonder 40 Soars

Verizon sheds its rural phone lines even as the Yonder 40 stock index outshines its big city rivals.

Share This:

Verizon Communications, Inc., continued its disinvestment in rural America in mid-May, striking a $8.6 billion deal to sell local phone businesses in 14 states to Frontier Communications. According to the Wall Street Journal, the sale “allows Verizon to shed 4.8 million rural phone lines and transfer 11,000 workers to Frontier, which provides phone services in small towns and rural areas.”

“These are good properties, but they’re much more rural in nature, and they really don’t fit with the strategy we have for FiOS and broadband,” Verizon’s chief financial officer, John Killian, told the Journal.

Verizon has been selling its local phone services recently in rural areas, a move the company believes will allow it to focus on wireless IT and on markets that are “better tailored” (according to the Journal) for its Internet and fiber optic television services. FairPoint Communications bought Verizon’s New England landlines last year.

Both Frontier and FairPoint belong to the Yonder 40, 40 stocks picked to reflect the rural economy. Both firms have lost a large portion of their value in 2009. FairPoint is down by 61% since the year began while Frontier is off by 16.5%. (See the next page to find how all the Yonder 40 stocks have fared since the beginning of the year.)

The Yonder 40, however, continues to outshine the more well-known stock indexes. Since January 2, the Yonder 40 is up 5.3%.

The Dow Industrials are down 8.4% and the S&P 500 index has dropped 4.8%.

The Verizon/Frontier deal was certainly the largest to take place in rural America in the last month. Frontier will triple in size. At the same time, Maggie Wilderotter, CEO of Frontier, said a high priority for the company will be to extend high-speed Internet access to more consumers. In order to have the funds to make these investments, Wilderotter will reduce its annual dividend from $1 a share to 75 cents.

Since the start of 2009, 22 of the Yonder 40 companies have seen an increase in their stock prices. The biggest winners among the rurally-based companies are Cabela’s, the outdoor recreation retailer (up 107%); the gunmaker Sturm Ruger (up 76%); Tyson Foods, the meat producer (up 58%); and rural clothing retailer Stage Stores (up 49%).

Fairpoint was the biggest loser. (Its purchase of Verizon’s New England properties has been a bumpy venture.) Rural airline Skywest is off by 40%; Regions Financial, the banking firm, is down by 44%; and energy producer Penn Virginia has dropped 36%.

Here are recent news reports concerning other Yonder 40 companies:

• Burlington Northern saw a more “modest” drop in freight hauled on its rail lines in the most recent quarter. The company reported that there is “more stability in the bottom right now.”

• Coal stocks perked up after Goldman Sachs analysts said that economic expansion in China would bolster demand for the fuel.

Wall Street Journal

• Deere reported earnings that were 38% below a year ago. Demand for the company’s tractors was down, as were sales of the its riding mowers. As the U.S. Department of Agriculture predicted flat to lower prices for major commodity crops, Deere cut its outlook for the rest of 2009. As you can see in the chart here from the Wall Street Journal, Deere’s stock price is closely linked to the price of corn.

•Smithfield Foods reported that tests show there was no virus present in the company’s Veracruz pig herd. After the so-called swine flu outbreak — and reports that one of the initial victims came from Veracruz — the company’s hogs were investigated as a source of the virus.

•A study conducted by MIT finds that there has been no progress in the creation of new nuclear power capacity in the U.S. The university’s report finds that state and federal renewable energy standards encourage wind and solar power, but not nuclear power. “Unfortunately, most [renewable portfolio standards] programs exclude two important low-carbon technologies, nuclear and coal with CO2 sequestration, confusing the objective of reducing carbon emissions with encouraging renewable energy in electricity generation,” the report says.

Below is a listing of all the Yonder 40 stocks, showing their last reported trade and their record in 2009: